Tax Question

Comments(7)

• 
  DaveT29th December, 2003

  High level answer.
  
  In your buy-rehab-sell for quick profit scenario, your profits are ordinary income taxed at your ordinary income tax rate and also subject to self-employment taxes at the same time.

• 
  pejames30th December, 2003

  DaveT,
  Does that depend on how you purchase the property, I mean, if you purchase the property in a LLC, does that change anything? Does the profit get taxed the same? Thanks

• 
  jar9930th December, 2003

  Would it matter how long you owned the property before it was sold?
  
  Thanks

• 
  DaveT31st December, 2003

  Quote:pejames wrote:
  
  Does that depend on how you purchase the property, I mean, if you purchase the property in a LLC, does that change anything? Does the profit get taxed the same? ThanksIn the buy-rehab-resell for quick profit scenario, the business entity used will not change the tax treatment, but may change the tax rate. For example, the first $50K in net corporate income in a Subchapter C Corporation is taxed at a 15% rate. If the
  same transaction is done in a LLC (disregarded entity), the income is still ordinary income but it will be taxed at the member's ordinary income tax rate and self-employment income taxes may still come into play.
  
  Essentially the bottom line is: a dealer disposition is a dealer disposition regardless of the business entity that is used to conduct the transaction.
  
  Quote:jar99 wrote:
  
  Would it matter how long you owned the property before it was sold? No. For the buy-rehab-resell for quick profit scenario, a dealer disposition is always treated as a dealer disposition regardless of the holding period. Even if you took one year to do the rehab and sold after holding for one year and one day, your transaction is still a dealer disposition and the profit is still taxed as ordinary income to either yourself or your business entity.

• 
  InActive_Account2nd January, 2004

  As a tax accountant, I agree with Dave T on all of his points. however, there is a method to help reduce some of your Self Employment taxes. If you do your quick turn real estate deals in a S-Corp, the S-Corp will be the dealer and the gains will be ordinary income as Dave T explained above. You can take a salary from your corporation for your time and pass the balance of the annual income to you as dividends. This will bypass the SE tax obligation. There are several issues that need to be addressed to do this correctly and I suggest you contact your attorney or tax professional to go over the specifics of your case.

• 
  willissleepdog11th January, 2004

  question: I brought 4 properties this year each one is currently being rented. What I want to know is should I report this income as rental royalties or report it on a schedule C as a busines income. Advantage/disadvantage.
  [addsig]

• 
  DaveT11th January, 2004

  It is best to post a new question as a new topic. I almost did not read down to the bottom of this thread, because I saw that it started a quick flip question that has already been answered.
  
  The answer to your question depends upon why you rented the properties and your future plans for the properties (what is your investment strategy?).
  
  Please start over, post your question as a new topic, and give us a little more context behind your question.